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Economics AQA YEAR 1 AND 2 > Microeconomics Topic 2 > Flashcards

Microeconomics Topic 2 Flashcards

1
Q

What role does production flexibility play in supply elasticity?

A

Flexibility in production methods allows producers to quickly adapt to changes in price.

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2
Q

What defines market equilibrium in economics?

A

Market equilibrium occurs when quantity demanded equals quantity supplied.

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3
Q

How are equilibrium price and quantity determined?

A

Equilibrium price and quantity are determined by the interaction of demand and supply

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4
Q

What occurs in a market during a surplus?

A

A surplus occurs when there is excess supply at a price above equilibrium.

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5
Q

What is the implication of a shortage in a market?

A

A shortage occurs when there is excess supply at a price above equilibrium.

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6
Q

What is the implication of a shortage in a market?

A

A shortage occurs when there is excess demand at a price below equilibrium.

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7
Q

How is consumer surplus defined?

A

Consumer surplus is the difference between what consumers are willing to pay and what they can actually pay.

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8
Q

What is producer surplus and how is it represented?

A

Producer surplus is the difference between what producers are willing to accept and what they actually receive.

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9
Q

What function does the price mechanism serve in rationing goods?

A

Prices increase when goods are scarce, which discourages demand through rationing.

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10
Q

How do higher prices serve as an incentive for producers?

A

Higher prices provide an incentive for producers to increase supply to maximize profits.

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11
Q

What is inelastic demand?

A

Inelastic demand is when PED is less than 1, indicating low responsiveness to price changes.

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12
Q

What characterizes unit elastic demand?

A

Unit elastic demand is when PED equals 1, with percentage changes in quantity demanded equal to price changes.

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13
Q

What does perfectly inelastic demand mean?

A

Perfect inelastic demand, where PED equals 0, indicates quantity demanded remains unchanged regardless of price changes.

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14
Q

What is the implication of perfectly elastic demand?

A

Perfectly elastic demand implies PED approaches infinity, where any price increase leads to zero demand.

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15
Q

How does the availability of substitutes affect PED?

A

More available substitutes result in more elastic demand, increasing responsiveness to price changes.

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16
Q

What is the difference between necessities and luxuries in terms of PED?

A

Necessities tend to have inelastic demand, while luxuries tend to exhibit more elastic demand.

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17
Q

How does income proportion spent affect demand elasticity?

A

Goods taking up a larger income proportion usually have more elastic demand.

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18
Q

What trend does demand elasticity generally follow over time?

A

Demand is more elastic in the long run compared to the short run.

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19
Q

How does knowledge of PED affect pricing strategy for businesses?

A

Understanding PED helps businesses set optimal prices to maximize revenue.

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20
Q

What role does PED play in tax incidence analysis?

A

PED informs how the tax burden is distributed between consumers and producers.

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21
Q

What does income elasticity of demand (YED) measure?

A

YED measures demand responsiveness to changes in income.

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22
Q

What is the formula for calculating YED?

A

YED = % Change in Quantity Demanded / % Change in Income.

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23
Q

What does YED > 0 signify?

A

YED > 0 indicates a normal good, where demand rises with income increases.

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24
Q

What does YED < 0 indicate about a good?

A

YED < 0 signifies an inferior good, where demand rises with income increases.

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25
What characterizes a luxury good in terms of YED?
A luxury good has YED > 1 where demand rises more than proportionately as income increases.
26
What does cross elasticity of demand (XED) measure?
XED measures how demand for one good responds to price changes of another good.
27
What is the formula for XED?
XED = % Change in Quantity Demanded of Good A/ % Change in Price of Good B.
28
What does XED > 0 indicate?
XED > 0 indicates substitute goods, where a price increase of one increases demand for the other.
29
What is the implication of XED < 0
XED< 0 reflects complementary goods; a price increase in one decreases demand for the other.
30
What does XED = 0 signify?
XED = 0 indicates no relationship between the two goods.
31
How is supply defined in economics?
Supply refers to the quantity of a good producers are willing to sell at a given price over a specific time.
32
What does the law of supply state?
The law of supply states a positive relationship between price and quantity supplied.
33
How is the relationship between price and quantity supplied typically represented?
This relationship is represented by an upward-sloping supply curve.
34
What is the rationing function of the price mechanism?
It allocates scarce goods by increasing prices, discouraging excessive demand.
35
How do higher prices serve as an incentive for producers?
They signal producers to increase supply for higher potential revenue.
36
What role does signaling play in the price mechanism?
Price indicate market conditions; rising prices show scarcity, while falling prices indicate surplus.
37
What is one advantage of the price mechanism in resource allocation?
It ensures efficient distribution of resources based on consumer valuation.
38
Why is the price mechanism considered self-regulating?
Market adjustments occur without government intervention, creating a dynamic economy.
39
What disadvantage of the price mechanism related to inequality?
It can create disparities in wealth as only those with resources access higher-priced goods.
40
In what scenario might market failures occur with the price mechanism?
In cases involving public goods, limiting its effectiveness and resulting in suboptimal outcomes.
41
How do indirect taxes like VAT affect the supply curve?
They shift the supply curve leftward, increasing production costs.
42
What is the tax incidence related to price elasticity of demand?
It determines how tax burden is shared, with inelastic demand leading consumers to bear more.
43
How do subsidies influence the supply curve?
Subsidies shift the supply curve right, reducing production costs and encouraging output.
44
What do demand and supply curves illustrate?
They show the equilibrium price and quantity resulting from the interaction of demand and supply.
45
What factors can cause shifts in demand and supply curves?
Non-price factors like consumer preferences or production costs impact market equilibrium
46
What do consumer and producer surplus represent?
They indicate the benefits consumers and producers gain from market transactions.
47
How do tax incidence diagrams show the impact of elasticity?
They illustrate how the distribution of tax burden varies between consumers and producers based on elasticity.
48
What is the definition of a market?
A market is a system where buyers and sellers interact to exchange goods and services at agreed prices.
49
What are product markets?
Product markets involve trade in goods and services, such as food markets and retail.
50
What do factor markets involve?
Factor markets involve trade in resources like labour and capital.
51
What assumption states there are many buyers and sellers in competitive markets?
The assumption in competitive markets is that there are many buyers and sellers.
52
What is the law of demand?
The law of demand states that as the price of a good falls, the quantity demanded increases, ceteris paribus.
53
What relationship does a downward-sloping demand curve illustrate?
It illustrates the inverse relationship between price and quantity demanded.
54
How does the price of a good affect demand?
Changes in price lead to movements along the demand curve.
55
What defines normal goods in relation to income?
For normal goods, demand increases as income rises.
56
What happens to the demand for inferior goods as income rises?
For inferior goods, demand decreases as income rises.
57
How do substitute goods relate to demand?
An increase in the price of one good leads to an increase in demand for its substitute.
58
What effect do complementary goods have on each other?
An increase in the price of one good leads to an increase in demand for its substitute.
59
How can tastes and preferences shift demand?
Changes in consumer preferences can shift the demand curve.
60
What impact does the population size have on demand?
Changes in population size can affect overall demand.
61
What does price elasticity of demand (PED) measure?
PED measures the responsiveness of quantity demanded to a change in price.
62
How do expectations of future prices influence current demand?
Anticipated future price changes can influence current demand levels.
63
What is the formula for calculating (PED)?
PED = % Change in Quantity Demanded / % Change in Price.
64
What does PED > 1 indicate?
It indicates demand is elastic; quantity demanded changes significantly with price changes.
65
What does PED < 1 signify?
It signifies demand is inelastic, with little change in quantity demanded despite price changes.
66
What is meant by unit elastic demand?
Unit elastic demand occurs when the percentage change in quantity demanded equals the percentage change in price.
67
What characterizes perfectly inelastic demand?
Perfectly inelastic demand means quantity demanded does not change regardless of price changes.
68
What does the term 'supply' encompass in economics?
Supply refers to the quantity of a good or service that producers are willing and able to sell at a given price.
69
What does the Law of Supply state regarding price and quantity supplied?
The Law of Supply states that as price rises, the quantity supplied increases, all else being equal.
70
How is movement along the supply curve influenced?
Movement along the supply curve is influenced by changes in the price of the good.
71
What effect do higher production costs have on supply?
Higher production costs generally reduce supply as it becomes less profitable for producers.
72
In what way can technology impact supply?
Advances in technology can lead to an increase in supply by making production more efficient
73
How do taxes and subsidies play a role in supply levels?
Taxes can decrease supply, while subsidies can increase it, altering production incentives.
74
How do price expectations influence supply decisions?
Anticipated future prices can lead producers to adjust their current supply strategies accordingly.
75
What effect does the number of producers in a market have on supply?
An increase in the number of producers enhances overall supply in the market.
76
Why is the availability of stocks important for elasticity of supply?
Having stocks on hand enables producers to quickly adjust output in response to price changes.
77
What does Price Elasticity of Supply (PES) measure?
PES measures how responsive the quantity supplied is to a change in price.
78
How does spare capacity affect the elasticity of supply?
Spare capacity allows producers to respond more easily to price changes, making supply more elastic.
79
How is the Price Elasticity of Supply calculated?
PES is calculated as the percentage change in quantity supplied divided by the percentage change in price
80
How does time period influence the elasticity of supply?
Over a longer time frame, supply typically becomes more elastic as producers adjust production.
81
What does it mean if PES is greater than 1?
PES > 1 indicates elastic supply, meaning quantity supplied changes significantly with price changes.
82
What does PES less than 1 indicate about supply responsiveness?
PES < 1 indicates inelastic supply, where quantity supplied changes little with price changes.
83

Economics AQA YEAR 1 AND 2 (3 decks)

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